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LIC SIIP Plan (852): Assessment: Not an SIP: Do you have to make investments?


LIC SIIP (LIC Systematic Funding Insurance coverage Plan) is a Common premium ULIP. As with ULIPs, the returns are market-linked. However the plan has a lot costly value construction in comparison with new ULIPs we see today. Higher to remain away.

LIC SIIP plan is an everyday premium ULIP from LIC. As I see, the nomenclature has been chosen to trip the recognition of SIPs (systematic funding plans) in mutual funds. Although there may be nothing incorrect with the identify, the selection appears intentionally deceptive.  We should see this within the context of ranges of monetary consciousness within the nation. Given how a lot traders belief LIC, the plan would have bought nicely beneath any identify. LIC might have accomplished with higher identify choice.

Let’s go previous the
nomenclature and discover in regards to the LIC SIIP intimately.

LIC SIIP (Plan 852): Salient
Options and Assessment

  1. It’s a unit-linked insurance coverage plan (ULIP). This implies there is no such thing as a assure of returns.
  2. This can be a Kind I ULIP. On the time of demise, the nominee will get Increased of (Sum Assured, Fund Worth). Beneath a Kind II ULIP, the nominee will get Sum Assured + Fund Worth. The whole lot else being the identical, Kind I ULIP gives higher returns whereas the Kind II ULIP gives higher life cowl.
  3. Coverage Time period: 10 to 25 years
  4. Common Premium plan (Premium cost time period similar as coverage time period)
  5. Premium Fee Frequency: Month-to-month, Quarterly, Half-yearly, Yearly
  6. Sum Assured: Will depend on your entry age
    1. Entry age as much as 55 years: 10 instances the annualized premium
    2. Entry age 55 years and above: 7 instances the annualized premium
  7. Eligibility: I reproduce a picture from the product brochure
  8. Fees within the plan: Premium allocation fees, the Mortality fees, fund administration fees, switching fees, partial withdrawal cost, and so forth. Will talk about these later within the publish.
  9. You CAN NOT get a mortgage beneath LIC SIIP plan. Loans are usually not permitted for ULIPs.
  10. You’ve 4 fund decisions (Bond Fund, Secured Fund, Balanced Fund, Development Fund)
LIC SIIP systematic investment insurance plan plan 852
LIC SIIP Plan (852): Eligibility
LIC SIIP: Minimal and Most Premium
lic nivesh plus ulip fund choices
LIC SIIP Plan; Decisions of Fund

LIC SIIP Plan (Plan 852): Varied
Fees and their impression

For a deeper understanding about numerous sorts of fees in ULIPs, how they’re adjusted and their impression on returns, consult with this publish.

The ULIPs have the
similar nomenclature for the fees. I’ll level out areas the place LIC SIIP is
higher or worse than different widespread ULIPs.

Premium allocation cost: This cost is deducted from the premium earlier than your cash will get invested. It’s expressed as a share of premium. GST can also be relevant on these fees.

In LIC SIIP plan,
Premium allocation cost is

LIC SIIP plan table 852

Due to this fact, should you
make investments Rs 1 lacs each year within the plan, Rs 9,400 (incl. 18% GST) might be
charged in case of offline buy and Rs 3,540 (incl. 18% GST) in case of
on-line buy. The remaining cash will get invested however might be topic to different
fees.

From the second
until the 5th yr, Rs 6,490 might be charged in case of offline and
Rs 2,360 might be charged in case of on-line plan.

From the 6th
yr onwards, Rs 3,540 and Rs 1,180 might be charged for offline and on-line
plans respectively.

At a time when personal insurers are shifting in the direction of zero premium allocation cost at the least for on-line gross sales, these fees are exorbitant.

Mortality fees: These fees go in the direction of offering you the life cowl. The mortality fees rely in your age and are recovered each month by means of the cancellation of fund items each month.  I reproduce the mortality cost desk from pattern coverage doc on LIC web site.

LIC Nivesh plus 849 mortality table impact of charges

Mortality fees enhance with age. If you’re previous, mortality fees will have an effect on your returns extra. On the similar time, since it is a Kind I ULIP (sum-at-risk = Sum Assured – Fund Worth), the impression of mortality fees might be decrease. Sum-at-risk is the quantity that the insurance coverage firm should pay within the occasion of policyholder demise. In Kind-I ULIPs, because the fund worth will increase, the Sum-at-risk goes down. Due to this fact, the impression of mortality fees additionally goes down.

I discovered the
fees barely larger than a number of the ULIPs from personal corporations that I
checked out.  

LIC SIIP Plan: Return of
Mortality fees

There’s a provision
that the mortality fees might be returned to the investor on the time of
maturity. Solely the bottom fees might be returned to the investor. Any taxes or extra
resulting from your well being situation gained’t be reimbursed. This might be paid as well as
to the fund worth.

In isolation, that is an investor-friendly gesture. Nonetheless, this gained’t make a lot distinction to your returns.

Why?

Since you get
solely absolutely the mortality fees. No return is given on these fees.
As talked about earlier, taxes and extra gained’t
be returned both.

Furthermore, since
it is a Kind-I ULIP, the quantum of mortality cost will go down yearly and
finally go to zero as soon as the Fund Worth exceeds the Sum Assured.

Irrespective of how we
spin it, every little thing comes from the fees.

Mortality fees
gained’t be returned for surrendered or discontinued insurance policies or within the occasion of demise
in the course of the coverage time period. These fees are returned provided that the policyholder survives
the coverage time period.

LIC SIIP: Assured Additions

The plan gives
assured additions too (form of loyalty advantages).

I talked about assured additions in my publish on LIC Nivesh Plus (a single premium ULIP from LIC. These are simply advertising and marketing gimmicks. The whole lot finally comes out of your cash.

LIC SIIP plan: How will the maturity
proceeds be taxed?

The demise profit is at all times exempt from tax.

The identical shouldn’t be
true for the maturity profit.

For maturity proceeds to be exempt from tax, the Sum Assured needs to be at the least 10 instances the annual premium. If this situation shouldn’t be met, the maturity proceeds are taxable. There may be TDS of 5% too.

In case your age on the
time of entry within the plan is lower than 55 years, your life cowl (Sum Assured)
might be 10 instances Annual Premium. No tax downside on this case. The maturity
proceeds might be exempt from tax.

Nonetheless, in case your entry age is 55 or above, the Sum Assured is 7 instances the annual premium. Whereas this helps you save a bit on mortality fees, the flipside is that the maturity proceeds might be taxable.

LIC SIIP plan: What are the returns
like?

I reproduce the
illustration given within the gross sales brochure.

LIC SIIP plan returns calculation

The illustration
reveals returns for gross funding returns of 4% and eight% p.a. (as mandated by
IRDA). Being a ULIP, you’ll anticipate the investments to earn a better return
however that’s not necessary proper now. The returns will even rely in your age
and the funds chosen.

Let’s contemplate the instance with a coverage time period of 25 years and gross returns of 8% p.a. The investor pays a quarterly premium of Rs 30,000 for 25 years and will get Rs 69.17 lacs on the time of maturity. Notice that is together with Return of Mortality fees and Assured Additions. Complete funding was Rs 30 lacs.

This can be a internet return of 6.07% p.a. 1.94% p.a. of your return gone resulting from numerous fees.

Not enticing.

In case your funding earned 8% p.a. you’ll have Rs ~92.07 lacs on the finish of 25 years. LIC SIIP fees eat away 37% of the gross returns. Not accomplished.

Factors to Notice

  1. The returns might be larger (decrease) if the gross returns are larger (decrease).
  2. The returns might be decrease (larger) if the entry age is larger (decrease).
  3. This illustration is for an offline plan (by means of an agent). Offline plans have larger prices. On-line plans are cheaper. The whole lot else being the identical, the web plan will give higher returns.
  4. This illustration is for a 30-year-old. For this investor, the Sum Assured is 10 instances the annual premium. Therefore, the maturity proceeds might be exempt from tax.
  5. For the entry age 55 years or above, the Sum Assured is simply 7 instances Annual Premium. Therefore, the maturity proceeds might be taxable. The demise profit will nonetheless be exempt from tax. There isn’t a illustration for this case within the gross sales brochure.

LIC SIIP: Do you have to make investments?

I recommend you don’t.
Please hold your insurance coverage and funding wants separate.

In your insurance coverage
wants, buy a plain vanilla time period life insurance coverage plan.

In your funding
wants, buy pure funding merchandise (and low-cost merchandise) reminiscent of PPF,
mutual funds and so forth.

Nonetheless, should you should make investments on this plan, buy the plan on-line. Moreover, be aware that, in case your entry age is 55 or above, the maturity proceeds might be taxable.

The publish was first revealed in March 2020.

Extra Learn/Supply

  1. LIC SIIP Plan (Plan 852): Product Brochure
  2. LIC SIIP Plan (Plan 852): Coverage wordings
  3. LIC Nivesh Plus web page on LIC web site
  4. Find out how to choose the Greatest ULIP?
  5. Why I choose Mutual Funds over ULIPs?
  6. ICICI Prudential Life Signature ULIP
  7. How numerous fees in ULIPs destroy your returns?
  8. In a ULIP, you pay extra for the life cowl as in comparison with Time period Life Insurance coverage Plans
  9. In conventional plans and ULIPs, your age impacts your returns
  10. The issue with Single Premium Life Insurance coverage Plans
  11. The Whole Life Insurance coverage Premium shouldn’t be taxdeductible
  12. If you’re previous, don’t purchase ULIPs
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